Closing Recap

Wednesday, November 17, 2021

Index	Up/Down	%	Last
DJ Industrials	-210.70	0.58%	35,931
S&P 500	-12.16	0.26%	4,688
Nasdaq	-52.28	0.33%	15,921
Russell 2000	-28.02	1.17%	2,377

 

Equity Market Recap

·     Stocks finish the day lower, but still not far from record highs for most major averages as rising concerns of possible early rate hikes by the Federal Reserve after strong retail earnings and economic data gave pause to markets. Financials were among the weakest link in the stock market today, as Dow components Visa and Goldman Sachs lagged. The Nasdaq 100 advanced behind strength in the usual market suspects (AAPL, AMZN, MSFT, TSLA), while NVDA paused ahead of earnings tonight. Transports, along with Smallcaps lagged with the Russell 2000 down over 1%. Consumer Discretionary among top three S&P sectors behind earnings while industrials were weak with Financials amid falling Treasury yields. Economic data mixed today with Housing Starts below estimates while Building Permits came in above. Precious metals grise behind a pullback in the buck. Besides the possible raising rate environment, markets still dealing with who will be the next Fed Chair (Powell or Brainard) as well as Social Security, Medicare, and other important programs in focus ahead of the December debt limit deadline in Washington. Still to this point, nothing appears to shake market sentiment despite the massive run.

·     Stock & Sector movers: LOW hits new record highs on its strong quarter including positive comps despite expected decline and raised full-year guidance a day after HD hit records after its report; TGT slides off yesterday’s record close despite a quarterly beat on EPS, revs, and comps, and raising its full-year guidance on margin pressures, while TJX soars to record highs on its beat, increased buyback, and strong start to Q4 in retail earnings; BBWI VSCO report tonight, M, KSS, PLCE, WOOF scheduled pre-market tomorrow; Visa (V) sinks to lowest levels in 9.5-month after AMZN banned its credit cards from being used for purchases in the UK due to high transaction fees and PYPL pressured again after Bernstein downgraded it due to increasing competition; payment names FIS, GPN, MA, FISV join them among worst S&P decliners on the day; ROKU stumbled to its 2021 lows more than 50% off its July ATH after Moffett downgraded it to Sell; SAVA plunges after the SEC announced an investigation into whether the company manipulated research results of its Alzheimer’s drug; IQ slides to record lows while BIDU, BILI also drop sharply after results to drag China ETFs and stocks; energy names APA, PSX, MRO, BKR underperform after WTI crude dips under $78/barrel for the first time in over a month; NVAX soars after EMA begins COVID-19 vaccine candidate review; MRNA rises after filing for U.S. authorization of booster shots for all adults; while BNTX PFE MRK other vaccine makers also outperform.

·     Stocks down ticked around noontime after FundStrat Global Advisors research chief Thomas Lee said on CNBC’s halftime that the stock market could run into a "speed bump" in the next couple of weeks, amid uncertainty around leadership within the Federal Reserve and some technical factors. Lee maintained his generally bullish outlook for the rest of the year, although he now thinks a "buyable pullback" could be possible in the period around Thanksgiving. Lee pointed to some signs of exhaustion in select sectors as part of his case for a pullback.

·     Third quarter earnings nearly behind us: Bernstein noted Q3 earnings season is winding down with companies representing more than 88% of S&P 500 stocks finished reporting. Of these, 85% managed to meet or beat bottom line consensus forecasts. Information Technology (+98%) led the market in upside earnings surprises. 76% of companies met or beat revenue ests. Earnings and revenue beat ratios are well above the historical averages of 78% and 59%, respectively. 67% of companies exceeded analysts’ forecasts on both the top and bottom lines while 6%.

 

Economic Data:

·     Housing starts unexpectedly fall in October, while permits rise; Housing starts fell -0.7% MoM to 1.520M vs. 1.587M expected and 1.530M prior (revised from 1.555M); Building permits for Oct rose +4.0% to 1.650M vs. 1.630M expected and 1.586M prior (revised from 1.589M)

 

Commodities

·     Rough day for the oil patch as WTI crude falls -$2.40, or 2.97% to settle at $78.36 per barrel (lowest level since October 7^th), extending losses after weekly inventory data showed that U.S. crude inventories fell by 2.1M barrels for the latest week, smaller than the average 2.5M-barrel decrease expected. That data came after the American Petroleum Institute (API) on Tuesday reported a 655,000-barrel rise. The EIA data showed crude stocks at the Cushing, Okla., Nymex delivery hub edged down by 200,000 barrels for the week. Currently, oil prices are on track for a 4^th straight week of losses as WTI drops below its 50-day MA.

·     Gold prices regain momentum, rising $16.20 or 0.9% to settle at $1,870.20 an ounce, snapping its modest 2-day pullback off 5-month highs as the dollar slipped alongside Treasury yields. Surging inflation continuing to provide support for prices of the precious metal.

 

Currencies & Treasuries

·     After a spike that pushed the dollar index (DXY) to its best levels since June of 2020 recently, the buck took a breather against some rival currencies, falling -0.2% back below 96. The Canadian dollar weakened to its lowest level in nearly six weeks at 1.26045 to the U.S. dollar as oil prices sliding (WTI crude drops as much as 3% $79 per barrel after inventory data). The buck fell back to around 114 against the Japanese yen after nearing 115 earlier and the euro rebounded after dropping to lows around 1.13 (YTD lows stand at 1.1265).

·     Treasury yields end lower; the U.S. Treasury sold $23B in 20-year bonds at a yield of 2.065% vs. 2.051% when issued (small tail), with the bid-to-cover at 2.34 and indirect bidders awarded 60.18%, directs 19.38% and primary dealers 20.44%. Treasury yields edged lower following the auction as the 10-year yield hit lows around 1.6% (down from overnight highs of 1.655).

 

 

Macro	Up/Down	Last
WTI Crude	-2.40	78.36
Brent	-2.15	80.28
Gold	16.10	1,870.20
EUR/USD	-0.0008	1.1311
JPY/USD	-0.66	114.18
10-Year Note	-0.024	1.61%

 

 

Sector News Breakdown

Consumer

·     Retailers; TGT raised its forecast for annual same-store sales after beating quarterly expectations for EPS, sales and comp sales (comps rose 12.7% vs. est. 8.4%), but Q3 gross margin fell to 28% from 30.6% a year earlier on higher labor and freight costs which weighed on shares; TJX Q3 beats as EPS $0.84/$12.53B vs. est. $0.81/$12.27B on strong demand for its discounted products and said overall open-only comparable store sales growth for Q4 start were up in the mid-teens percentage range YoY; SCVL raises year EPS and sales outlook after Q3 beat; ODP announces $150M accelerated share repurchase and $150M increase in its existing stock repurchase plan; Canadian retailer Loblaw Cos Ltd raised its annual earnings outlook after posting third-quarter revenue and profit that beat estimates; LZB rises after adj. EPS beats, and raises dividend

·     Auto sector; the volatility remains astounding in the auto and electric vehicle sector, with massive moves daily for several names including TSLA, RIVN, LCID, GOEV among those most volatile; RIVN tumbled as investors locked in gains from a near 71% winning streak since the stock’s listing last week (a day after becoming the 3^rd highest mkt cap auto company behind TSLA and TM passing VLKAF); LCID also slides after passing Ford in mkt cap the day prior, after the company said Tuesday it is confident of producing 20,000 of its upcoming Lucid Air sedans in 2022; RACE tgt raised to $350 from $265 at Morgan Stanley as sees the company as one of the only surviving manufacturers of ICE engine vehicles long term; SEV opens at $20.06, after 10M share IPO priced at $15 per share, the middle of the $14.00-$16.00 range

·     Housing & Building Products; home improvement retail/DIY remains strong as LOW Q3 EPS $2.73 tops est. $2.36 on Q3 revs $22.92B vs. est. $22.06B; Q3 consolidated comparable sales up 2.2% vs. est. decline -1.3%; boosted its full-year sales guidance, to about $95B, above its prior view of about $92B (follows strong HD beat yesterday sent shares to record highs); ZG extend recent declines, down over 3% and hitting fresh 52-week lows following recent earnings tumble and the winding-down of the ZOffers home-buying business (WSJ had piece on the failure today)

·     Consumer Staples; COTY upgraded to Equal Weight from Underweight at Wells Fargo with $11 tgt saying despite remaining concerns on the company’s underlying fundamentals, does not see much reason to stand in the way of the stock here; NSRGY said it expects to nearly double its e-commerce sales to 25% of its group total by 2025 by increasing marketing and technological investments; SMPL and HSY see the strongest sales growth as US Food on avg grows +5.2% YoY in the latest 4W in Food Nielsen update, as per Bernstein; Chobani Inc. filed Wednesday for an initial public offering, but the New York-based yogurt company has not yet set any terms

·     Casinos, Gaming, Lodging & Leisure sector; IGT downgraded to Hold from Buy at Jefferies based on the current valuation and post the analyst meeting, the absence of meaningful catalysts to drive the shares higher; in lodging, Wells Fargo upgraded Hyatt (H) to Overweight, from Equal Weight, and downgraded CHH to Equal Weight as believe greater operational upside potential exists over the next 12 months for Hyatt vs. Choice given Hyatt’s weighting toward higher end hotels and corporate travelers; UBER introduces new membership program valued at $9.99 a month or $99.99 per year; in theme parks, Deutsche Bank initiated coverage on SEAS with Buy and $74 tgt based on its more concentrated portfolio of parks and the more immersive nature of the in-park experience, FUN a Buy and $66 tgt seen as a best in class operator and view its stable, experienced management team and a hold and $45 tgt on SIX

 

Energy

·     Energy stock movers; energy prices declined following mostly bearish weekly inventory data; Iran continues to breach many key limits set by 2015 nuclear deal, including uranium enrichment level and enriched uranium stock, with a quarterly U.N. atomic watchdog report estimating the country’s stock of enriched uranium growing by 48.4kg since the last report to 2,489.7kg

·     E&P and Majors; NOG purchased non-operated Permian Basin properties from Veritas Energy fot $406.5M in cash and ~1.9M common equity warrants with an exercise price of $28.30/shr; Stifel upped their PT on OAS to $176 from $155 as they are more constructive on management’s abilities to narrow the valuation gap vs Upstream peers; After earnings, Piper sees attractive valuations across E&P names with their favorites remaining DVN, PXD given their combination of capital return, oil-beta via variable dividends, and duration through deep low-cost project inventories; UBS upgraded SWN to Neutral with a $6 target from $4 driven by the recent strategic activity and as we mark-to-market our commodity deck; HES sees all assets FCF positive beginning 2022

·     Alt Energy, Utilities & Solar; Citi downgraded BLDP to Neutral/High risk due to disappointing sales in China and expected delay in meaningful fuel cell adoption in heavy-duty applications until 2023+ and initiated a pair trade O/W PLUG and U/W BLDP given PLUG raised FY22 sales guidance despite its 3Q21 miss and its hydrogen ecosystem strategy; Morgan Stanley downgraded MGEE to UW with a $69 PT as it has outperformed the utility group by ~5% YTD and now trades at a 28% premium to peers on their EPS estimates; after analyst day, ENPH had its PT raised by several analysts, including Evercore ($292 from $216), Truist ($290 from $250), OpCo ($290 from $225), Susquehanna ($290 from $210), Roth ($270 from $220), Goldman (to $270 from $235), and Cowen ($265 from $225); Guggenheim remains Neutral on FSLR but said yesterday’s 7% selloff on the restoration of tariff exemptions by the CIT was overdone and it is highly unlikely they will see any de-bookings from the decision and they are booked into 2023 at this point

 

Financials

·     Bank movers; Wolfe upgraded ZION to Outperform with an $85 PT from $64 on their view that the bank’s accelerating loan growth and higher short-term rates will drive an improvement in the risk-return profile and downgraded HBAN to Peer-Perform with an $18 PT from $20 as it currently trades at 2x TBV, above its historical average; Following the sector’s earnings, RBC believes BAC, C, FITB, HBAN, KEYand RF could see upward re-valuations and MTB, NTRS, PNC, TFC, and USB are high-quality stocks that should be owned; SEC Chair said he has asked staff to recommend rules around ensuring principal trading firms (PTFs) are appropriately registered as dealers, calling for improved transparency in the world’s biggest bond market.

·     Insurance; in mortgage insurance, MTG downgraded to Neutral from Buy, and RDN downgraded to Underperform from Buy at Bank America saying lower premium rates are inhibiting top-line growth in the sector; PGR reported combined ratio for Oct. of 97.2% vs. 92.6% YoY with net premiums earned $4.40 billion, +13% YoY and net premiums written $4.35 billion, +15% YoY

·     FinTech & Payments; PYPL downgraded to market perform from outperform at Bernstein and cut tgt to $220 from $260 citing concern about increasing aggregation of eComm within large platforms (e.g., Amazon, Shopify); DLO falls after reporting Q3 EPS 6c that missed est. 7c and in potential profit-taking as shares have more than doubled from its $21 IPO in early June; AVDX Q3 EPS (71c) was a wider loss than est. (14c) and announced an early IPO lock-up release for current employees with up to 1.6M shares being eligible to be sold beginning Friday; STNE tumbles as Q3 adjusted EPS of R$0.46 (US$0.08) misses the consensus estimate of R$0.60 and declined from R$0.99 YoY; Q3 net loss of R$1.26B compares with net income of R$249.1M a year ago; ACIW said it plans to accelerate rev growth from mid-single digits to mid to high single-digits and reach 7-9% organic rev growth by 2024 at its analyst day

·     Westpark Capital initiated Buy ratings on FLYW ($57 PT) due to its position to gain share in a large and underpenetrated cross-border payments market, FOUR ($105 PT) on attractive valuation at current levels with opportunities to drive modest multiple expansion, and PAYO ($13) as a beneficiary from growing eCommerce along with its encouraging growth trends and a yet-to-be realized margin story, and Hold on PSFE ($5) as it undergoes an internal transformation and they await signs of accelerating growth and a more consistent trajectory

·     Consumer Finance; Visa (V) slips (biggest drag on the Dow Jones Industrial Average) after Amazon (AMZN) to ban Visa credit cards in the UK due to the high transaction fees charged; Amazon customers can still use Visa debit cards, Mastercard and Amex credit cards, and Eurocard – shares of MA also underperformed; MA shares later bounced off lows after Bloomberg reported AMZN is considering moving co-brand to the company from Visa

·     Bitcoin news; Los Angeles’ Staples Center will be renamed Crypto.com Arena effective Christmas Day in a deal that is believed to be the richest naming rights deal in sports history, with reports estimating the website is paying $700M for a 20-year deal; BTBT reported earning 248.36 bitcoins in the quarter vs 588.4 in Q2 with the reduction due to exiting China with its fleet 100% located in North America now, owning 27,744 miners at end of Q3 with an estimated total hash rate of 1.603 EH/s, and purchased 10,000 bitcoin miners from Bitmain Technologies for $65M that is expected to boost its maximum has rate by 1 EH/s; IREN opened unchanged from its $28 IPO price, but quickly fell (priced well above the $25-$27/share range)

·     Financial services; NCNO entered into a definitive agreement to acquire SimpleNexus in a stock and cash transaction valued at ~$1.2B. which consists of $240M in cash and ~13.2M shares of nCino common stock; UPST partnered with credit union BCU, who serves over 300,000 members, to offer AI-powered personal loans; CURO acquired consumer finance company Heights Finance for $335M in cash and $25M in stock; JPMorgan initiated OPAD at OW with an $11 PT given its large addressable market early in digital transformation, numerous growth drivers, and disciplined management team

·     REITs; CUBE 13.5M share Secondary priced at $51.00; PSTL 4.25M share Secondary priced at $17.00; BMO raised their target on SUI by 5% to $225 after they acquired Park Holidays for £950M (~$1.3B) on Monday, and RBC also believes the deal should be highly accretive; Barclays resumed coverage on WELL with an OW rating and $92 PT; JMP raised their price target on INDT to $85 from $80 after their strong Q3 results earlier this month and the view that the real benefits of their growth plan should be seen in 2023

 

Healthcare

·     Pharma & Biotech movers; BIIB received a negative trend vote regarding the marketing authorization application for Alzheimer’s therapy aducanumab in Europe from its drug regulator Committee for Medicinal Products for Human Use (a formal opinion on aducanumab is expected in December); SAVA shares slide after a WSJ report the SEC is investigating claims that Cassava Sciences Inc. manipulated research results of its experimental Alzheimer’s drug; PFE announces retirement of CFO Frank D’amelio as Mike McDermott named EVP chief global supply officer; SRPT announced Gilmore O’Neill, its head of research and development (R&D), will leave the company at the end of the month.

·     COVID 19 vaccine news; MRNA files for authorization of its covid-19 vaccine with Health Canada to include children ages 6-11 years/submission based on phase 2/3 study of spikevax in children ages 6 to 11; VIR announces that they will supply $1 billion worth of doses of their Covid-19 antibody treatment that was developed with GlaxoSmithKline to the U.S. in the next month; NVAX and Serum institute of India receive emergency use authorization for covid-19 vaccine in the Philippines

·     Healthcare Services, MedTech Equipment; IQV reiterated Buy and tgt upped to $310 at UBS and raising our 2022-2025 estimates post IQV’s upbeat investor day noting the co provided initial 2022 guidance (revenue / EBITDA / EPS) ahead of the street despite the $1B headwind in COVID revenues; HIMS shares got a pop after saying its health and wellness products in Amazon’s U.S. store; VREX Q4 revs rose 7% seq, to $226M, beating consensus $215M est. helped by strong demand in nearly all verticals and Q1 guide $200-220M topped consensus $192M est.; LUCD slides as reported that its Q3 2021 net loss widened ~244% to ~$7M (-$0.49 net loss per share, basic and diluted), while operating expenses increased ~225% to ~$6.6M.

 

Industrials & Materials

·     Aerospace & Defense; BA upgraded to Overweight from Equal-weight at Wells Fargo and raise tgt to $272 from $224 as now sees a positive risk/reward balance with the stock lagging the S&P 500 Index by 30% since its March high; SPR added to US 1 List at Bank America; MAXR named a top pick in commercial aerospace at Morgan Stanley as NGA releases commercial GEOINT strategy to keep pace with accelerating technology; AL Chairman, while speaking at the Skift Forum, said the company mulled Boeing’s (BA) 777X freighter before order the Airbus (EADSY) A350F, as reported by Bloomberg

·     Transports; Baltic Exchange’s dry bulk sea freight index fell for a fifth straight session on Wednesday to its lowest in more than five months, as rates slipped across all vessel segments. The overall index dropped 161 points, or 6.2% to its lowest since June 8 at 2,430 points. The Capesize index shed 319 points, or 9.4%, to its lowest since early June at 3,064; HTZ announces proposed $1.5b private offering of senior notes; U.S. airlines carried 58.4 million passengers in September, which remains down 20% over pre-pandemic levels, the U.S. Transportation Department said; figures were more than twice the 25. 1 million passengers carried in September 2020 but still down from the 72.6 million in September 2019

·     Metals & Materials; MT will commence a new share buyback program in the amount of US$1 billion, expected to be completed by February 2022; Wolfe initiates coverage on metals sector with Outperform ratings on CSTM, CLF, CENX, AA, CMC, TECK and FCX; CMP receives two analyst upgrades to Outperform (at DB, BMO); potash/fertilizer names active (NTR, MOS, IPI) after ICL has reached an agreement with Indian Potash Limited to increase the selling price of 150,000 tons of potash to be delivered to India in 2021 to $445 per ton, according to a regulatory filing; paper stocks slip early (IP, WRK, PKG) European-focused boxboard producer BillerudKorsnas issued new strategy saying it is looking into expansion in the Americas – could raise concerns around capacity additions and competition in the domestic market; LAC acquires all outstanding shares of Millennial for C$4.70 each

 

Technology, Media & Telecom

·     Internet; SE tumbles a second day after being downgraded to Neutral at Bank America from Buy while up tgt to $386 noting shares are up 67% YTD (vs Nasdaq up 23%), mainly because of strong gaming/e-commerce revenues and they now see risk-reward as balanced; BIDU posted Q3 loss of 16.6B yuan ($2.6B) after recording significant charges, but revenue jumped 13% and beat analysts’ estimates; IQ drops after weak Q4 forecast as sees Q4 revenue between RMB 7.08 bln ($1.11 bln) and RMB 7.53 bln ($1.18 bln), below consensus of RMB 7.74 bln ($1.21 bln) saying it experienced significant uncertainty in content scheduling in Q3, and expects uncertainty to largely remain; shares of large caps AMZN, NFLX, strong while social media lags (SNAP, TWTR); U.S. listed Chinese names BABA, JD earnings on tap tomorrow morning

·     Semi’s and Software movers; WDAY upgraded to Outperform at Cowen and raising PT to $350 ahead of earnings on 11/18 saying checks are incrementally bullish on demand trends & large deal activity for 2H (follows an upgrade at UBS on Tuesday); BRZE 8M share IPO priced at $65.00, above the $55.00-$60.00 range prior (shares opened at $87.20); NVDA to report earnings tonight in semiconductor space (shares up 126% YTD into results); ATVI slides again after a busy Tuesday where it declined 6.1% alongside new reports about what CEO Bobby Kotick knew – and did – about sexual misconduct at the company.

·     Hardware, Components & Services; on no news, AAPL shares outperformed early, rising over 2% and helping support major averages; ROKU downgraded to Sell from Neutral at MoffettNathanson and reduce tgt to $220 from $330 while lower 2025 revenue estimate by -17% due to lower estimated video advertising revenues

·     Media & Telecom movers; VIAC is selling its historic CBS Studio Center in Los Angeles for $1.8 billion to a pair of real-estate firms, taking advantage of a hot entertainment property market, The Wall Street Journal reported; TMUS CMO said they partnered with LUMN for 5G edge networking